Expect margins to be in range of 25-26%: Dr Lal Pathlabs

Diagnostic services provider Dr Lal PathLabs reported a jump in consolidated net profit at Rs 60.82 crore for the third quarter ended December. In an interview to CNBC-TV18, Om Manchanda, CEO of the company, says the Dr Lal PathLabs' growth of 21 percent driven by volumes this quarter was in line with expectations and was mainly driven by volumes. Further, he expects margins to be in the range of 25-26 percent and remains confident about strong performance in Northern and Eastern markets.Below is the verbatim transcript of Om Manchanda’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: The revenue growth has largely been due to volumes and realisations. Can you take us through what you did in terms of volumes as well guide us for the fourth quarter both volumes as well as margins?A: Our growth rate actually has been in line with our expectations. We have grown at about 21 percent for this quarter. Year-to-date (YTD) growth has been about 22 percent odd. We continue to see the steady growth rate even in times to come as well. Most of this growth has come on account of volumes. We had dengue outbreak in the month of October and September. September went into the first half, so we continue to see a very strong volume growth in times to come.Sonia: These are some fabulous margins that you have clocked in this time. 37 percent even if you adjust the EBITDA margin for the employee stock option plan (ESOP) reversal it is still about 22 percent plus. What do you think the blended margins could be going ahead? I remember we spoke at the time of your listing and you mentioned that this business is such where margins will be about 24-25 percent plus in the quarters to come. What could be an average margin that you will work with in FY17?A: We continue to see a margins hovering around between 25 to 26 percent odd. I think at the time of listing we did mention that our margins may see a slight dip about couple of percentage points. However, if you see in this quarter there are three charges that have come – one is the ESOP reversal charge which has actually really bumped up these margins very high. Second is we have another stock grant scheme that also has been charged to the profit and loss (P&L). Overall I do see the margins will hover around 25 percent odd. Latha: What is the sense you are getting in terms of revenue growth. Is this 20-22 percent what we should expect in the quarters to come or will you do better in FY17?A: This market is growing at about 16 to 17 percent and in the past last two to two and a half years, we have actually grown at same percentage points. We continue to see the same steady growth rates in times to come as well. As a part of our strategy we are very strong in Northern and Eastern markets; even now in Central India as well. So, these three particular regions of the country, we have very strong brand in these markets. These markets are growing at 16-17 percent. In the past we have grown at about 20-21 percent in the last two years.Sonia: You said volumes are very strong. Can you tell us what exactly the numbers were? I mean how many patients, what the growth has been and what is expected going ahead?A: This quarter we have done about 2.9 million patients and on an average our test per patient is about 2.2. This particular ratio remains more or less very steady. We continue to see similar volume growth in times to come. As our business model is that we open lot of satellite labs in various cities and each lab is surrounded by a lot of collections centers. We also go to hospitals as well as smaller labs to pick up samples. So, we continue to see a very strong volume growth. I plan to focus more on volumes and less on other parameters because our network is spreading very large in these parts of the country. We are also building up two central labs one in Calcutta and other one in Lucknow. Calcutta work has already started, as that big lab comes up we will further get aggressive on spreading our network. Focus will continue to remain on patient’s growth. (Copy edited by Raveena Singh, interview transcribed by Vrushali Sawant)